SUMMARY Supply Chain Management
Chapter 1 operations and SCM
What is operations and supply chain management?
Operations and supply chain management is defined as the design, operation, and improvement
of the systems that create and deliver the firm’s primary products and services. Operations refers
to manufacturing and service processes that are used to transform the resources employed by a
firm into products desired by customers. Supply chain refers to processes that move information
and material to and from the manufacturing and service processes of the firm.
Operations and Supply Chain Process
Operations and supply chain processes can be conveniently categorized:
1. Planning consist of the processes needed to
operate an existing supply chain strategically.
2. Sourcing involves the selection of suppliers that will
deliver the goods and services needed to create the
firm’s product.
3. Making is where the major product is produced or
the service is provided.
4. Delivering is also referred to as a logistics process.
5. Returning involves processes for receiving worn-out, defective and excess products back
from customers and support for customers who have problem with delivered products.
Differences between services and goods
1. A service is an intangible process that cannot be weighed or measured, whereas a good is
a tangible output of a process that has physical dimensions.
2. A service requires some degree of interaction with the customer for it to be a service.
Goods, on the other hand, are generally produced in a facility separate from the customer.
3. Services are inherently heterogeneous, they vary from day to day and even hour by hour
as a function of the attitudes of the customers and the servers. Goods, in contrast, can be
produced to meet very tight specifications day-in and day-out with essentially zero
variability.
4. Services as a process are perishable and time dependent, and unlike goods, they can’t be
stored.
, 5. The specifications of a service are defined and evaluated as a package of features that
affect the five senses.
The goods-services continuum
Pure goods industries have become low-margin commodity businesses and in order to
differentiate they are often adding some services. Core goods providers already provide a
significant service component as part of their businesses. Core service providers must integrate
tangible goods, such as your cable television company must provide cable hookup and repair
services. Pure services, may need little in the way of facilitating goods but what they do use are
critical for their performance.
Product service bundling
Product-service bundling refers to a company building service activities into its product offerings
for its customers. Such services includes maintenance, spare part provisioning, training, and in
some cases, total systems design and R&D.
efficiency, effectiveness and value
efficiency means doing something at the lowest possible cost. The goal of an efficient process is
to produce a good or provide a service by using the smallest input of resources. Effectiveness
means doing the right things to create the most value for the customer. Related to efficiency and
effectiveness is the concept of value, which can be abstractly defined as quality divided by price.
How does Wall Street evaluate Efficiency?
Benchmarking is a process in which one company studies the processes of another company to
identify best practices. It is important to recognize the significant impact the operations and
supply chain processes have on these ratios:
Cash conversion cycle= day sales outstanding + day inventory – payable period
,The cash conversion cycle time can be interpreted as the time it takes a company to convert the
money that it spends for raw materials into the profit that it receives for the products that are
sold and use those raw materials. The days sales outstanding is the number of days that is takes
for a company to collect cash from customers. Days inventory is the number of days’ worth of
inventory the company holds in operation and supply chain processes. The payable period
measure indicates how quickly suppliers are paid by a company.
𝑎𝑛𝑛𝑢𝑎𝑙 𝑐𝑟𝑒𝑑𝑖𝑡 𝑠𝑎𝑙𝑒𝑠
𝐫𝐞𝐜𝐞𝐢𝐯𝐚𝐛𝐥𝐞𝐬 𝐭𝐮𝐫𝐧𝐨𝐯𝐞𝐫 =
𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑎𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑟𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒
Receivables turnover measures the number of times receivables are collected, on average during
the fiscal year. It measures a company’s efficiency in collecting its sales on credit. The lower the
ratio, the longer receivables are being held and the higher the risk of them not being collected.
?@AB @C D@@EA A@FE
Inventory turnover = GHIJGDI KLHILB@JM HGFNI
This ratio measures the company’s efficiency in turning its inventory into sales. Its purpose is to
measure the liquidity or speed of inventory usage. A low inventory turnover ratio is a signal of
inefficiency. A low turnover ratio can indicate poor liquidity, possible overstocking and
obsolescence. A high inventory turnover ratio implies either strong sales or ineffective buying.
JIHILNI (@J AGFIA)
Asset turnover = B@BGF GAAIBA
Asset turnover measures a firm’s efficiency at using its assets in generating sales revenue, the
higher the number, the better. It also indicates pricing strategy. Asset turnover is more general
than the other two and includes the plants, warehouses, equipment and other assets owned by
the firm.
Historical development of operations and supply chain management.
Manufacturing strategy: emphasizes how a factory’s capabilities could be used strategically to
gain advantage over a competing company.
Just in Time (JIT): An integrated set of activities designed to achieve high-volume production using
minimal inventories of parts that arrive exactly when they are needed.
Total quality control (TQC): Aggressively seeks to eliminate causes of production defects.
Lean manufacturing: Term used to refer to the set of concepts relating to JIT and TQC.
Total quality Management (TQM): Managing the entire organization so that it excels on all
dimensions of products and services that are important to the customer.
, Business process reengineering (BPR): An approach to improving business processes that seeks
to make revolutionary changes as opposed to evolutionary (small) changes.
Six Sigma: A statistical term to describe the quality goal of no more than 3.4 defects out of every
million units. Also refers to a quality improvement philosophy program.
Mass customization: The ability to produce a unique product exactly to a particular customer’s
requirements.
Electronic commerce: The use of the internet as an essential element of business activity.
Sustainability: The ability to meet current resource needs without compromising the ability of
future generations to meet their needs.
Triple bottom line: A business strategy that includes social, economic and environmental criteria.
Business analytics: The use of current business data to solve business problems using
mathematical analysis.
Chapter 1 operations and SCM
What is operations and supply chain management?
Operations and supply chain management is defined as the design, operation, and improvement
of the systems that create and deliver the firm’s primary products and services. Operations refers
to manufacturing and service processes that are used to transform the resources employed by a
firm into products desired by customers. Supply chain refers to processes that move information
and material to and from the manufacturing and service processes of the firm.
Operations and Supply Chain Process
Operations and supply chain processes can be conveniently categorized:
1. Planning consist of the processes needed to
operate an existing supply chain strategically.
2. Sourcing involves the selection of suppliers that will
deliver the goods and services needed to create the
firm’s product.
3. Making is where the major product is produced or
the service is provided.
4. Delivering is also referred to as a logistics process.
5. Returning involves processes for receiving worn-out, defective and excess products back
from customers and support for customers who have problem with delivered products.
Differences between services and goods
1. A service is an intangible process that cannot be weighed or measured, whereas a good is
a tangible output of a process that has physical dimensions.
2. A service requires some degree of interaction with the customer for it to be a service.
Goods, on the other hand, are generally produced in a facility separate from the customer.
3. Services are inherently heterogeneous, they vary from day to day and even hour by hour
as a function of the attitudes of the customers and the servers. Goods, in contrast, can be
produced to meet very tight specifications day-in and day-out with essentially zero
variability.
4. Services as a process are perishable and time dependent, and unlike goods, they can’t be
stored.
, 5. The specifications of a service are defined and evaluated as a package of features that
affect the five senses.
The goods-services continuum
Pure goods industries have become low-margin commodity businesses and in order to
differentiate they are often adding some services. Core goods providers already provide a
significant service component as part of their businesses. Core service providers must integrate
tangible goods, such as your cable television company must provide cable hookup and repair
services. Pure services, may need little in the way of facilitating goods but what they do use are
critical for their performance.
Product service bundling
Product-service bundling refers to a company building service activities into its product offerings
for its customers. Such services includes maintenance, spare part provisioning, training, and in
some cases, total systems design and R&D.
efficiency, effectiveness and value
efficiency means doing something at the lowest possible cost. The goal of an efficient process is
to produce a good or provide a service by using the smallest input of resources. Effectiveness
means doing the right things to create the most value for the customer. Related to efficiency and
effectiveness is the concept of value, which can be abstractly defined as quality divided by price.
How does Wall Street evaluate Efficiency?
Benchmarking is a process in which one company studies the processes of another company to
identify best practices. It is important to recognize the significant impact the operations and
supply chain processes have on these ratios:
Cash conversion cycle= day sales outstanding + day inventory – payable period
,The cash conversion cycle time can be interpreted as the time it takes a company to convert the
money that it spends for raw materials into the profit that it receives for the products that are
sold and use those raw materials. The days sales outstanding is the number of days that is takes
for a company to collect cash from customers. Days inventory is the number of days’ worth of
inventory the company holds in operation and supply chain processes. The payable period
measure indicates how quickly suppliers are paid by a company.
𝑎𝑛𝑛𝑢𝑎𝑙 𝑐𝑟𝑒𝑑𝑖𝑡 𝑠𝑎𝑙𝑒𝑠
𝐫𝐞𝐜𝐞𝐢𝐯𝐚𝐛𝐥𝐞𝐬 𝐭𝐮𝐫𝐧𝐨𝐯𝐞𝐫 =
𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑎𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑟𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒
Receivables turnover measures the number of times receivables are collected, on average during
the fiscal year. It measures a company’s efficiency in collecting its sales on credit. The lower the
ratio, the longer receivables are being held and the higher the risk of them not being collected.
?@AB @C D@@EA A@FE
Inventory turnover = GHIJGDI KLHILB@JM HGFNI
This ratio measures the company’s efficiency in turning its inventory into sales. Its purpose is to
measure the liquidity or speed of inventory usage. A low inventory turnover ratio is a signal of
inefficiency. A low turnover ratio can indicate poor liquidity, possible overstocking and
obsolescence. A high inventory turnover ratio implies either strong sales or ineffective buying.
JIHILNI (@J AGFIA)
Asset turnover = B@BGF GAAIBA
Asset turnover measures a firm’s efficiency at using its assets in generating sales revenue, the
higher the number, the better. It also indicates pricing strategy. Asset turnover is more general
than the other two and includes the plants, warehouses, equipment and other assets owned by
the firm.
Historical development of operations and supply chain management.
Manufacturing strategy: emphasizes how a factory’s capabilities could be used strategically to
gain advantage over a competing company.
Just in Time (JIT): An integrated set of activities designed to achieve high-volume production using
minimal inventories of parts that arrive exactly when they are needed.
Total quality control (TQC): Aggressively seeks to eliminate causes of production defects.
Lean manufacturing: Term used to refer to the set of concepts relating to JIT and TQC.
Total quality Management (TQM): Managing the entire organization so that it excels on all
dimensions of products and services that are important to the customer.
, Business process reengineering (BPR): An approach to improving business processes that seeks
to make revolutionary changes as opposed to evolutionary (small) changes.
Six Sigma: A statistical term to describe the quality goal of no more than 3.4 defects out of every
million units. Also refers to a quality improvement philosophy program.
Mass customization: The ability to produce a unique product exactly to a particular customer’s
requirements.
Electronic commerce: The use of the internet as an essential element of business activity.
Sustainability: The ability to meet current resource needs without compromising the ability of
future generations to meet their needs.
Triple bottom line: A business strategy that includes social, economic and environmental criteria.
Business analytics: The use of current business data to solve business problems using
mathematical analysis.
